GETTING MONEY FROM LIFE INSURANCE DURING LIFE
Viatication is a process through which an individual can sell their life insurance policy in order to fund the cost of long term care. The shorter the life expectancy of the person selling the policy, the higher the price the purchaser would be willing to pay for the policy.
Viatication first came into being about ten years ago. At that time, it was mainly used for individuals with AIDS or HIV. But the concept of selling a life insurance policy owned by a chronically and terminally ill individual was in no way limited to those infected with AIDS or HIV, and viatication caught on as a possible funding source for other individuals who required long term care.
Since its inception, however, the viatication industry has suffered serious setbacks, primarily as a result of increased life expectancies of those infected with the HIV virus. As a result, assuming that a person today could find a company willing to purchase their insurance policy, the price that the company would be willing to pay may be less than desirable.
Yet, there is another way to obtain money from your life insurance policy that can then be used to fund long term care: accelerating the payout of life insurance. Acceleration of the payout directly with the life insurance company has several significant advantages when compared to viatication.
Firstly, you are dealing directly with the insurance company that issued the policy. If the company offers the benefit of acceleration, you should be able to call their customer service department, ask for the appropriate form, have your physician sign the form, send the form back, and wait for the payment. Insurance companies are often willing to pay up to 50% of the policy’s death benefit. The remainder of the policy remains there for your benefit; the remainder can either be sold at a later date or merely retained as insurance.
Because acceleration is a little known concept, claims are often approved. Most insurance companies require only that your physician sign a simple form, indicating that your life expectancy is within their acceptable parameters. Typically, a life expectancy of twelve months or less is required in order to accelerate death benefits.
If the insurance company does approve the claim, they will send you a written explanation of the amount to be paid. If you accept the proposal, the company will typically send a check to you via overnight delivery.
Notwithstanding the ease of obtaining an acceleration of death benefits, given the right circumstances, few individuals actually apply for the benefit. On the one hand, this is due to a lack of public awareness of the option to accelerate. But it is probably also due to the fact that few people wish to admit that they are terminally ill. Having their physician fill out a form, indicating that they have less than twelve months to live, doesn’t sit well with most people.
Another advantage to acceleration over viatication is the lack of a discount. Viatical companies are currently discounting insurance policies by 30 to 60% of the face value. With acceleration, there is no discount, only a small processing fee, and as stated, the remainder of the policy remains intact.
Acceleration is also typically quicker than viatication. Assuming you could even find a viatical company willing to purchase your policy, the process could take up to three months. Acceleration often takes less than one month, and rarely more than two. Furthermore, acceleration benefits are tax free, because a physician has certified that the insured’s life expectancy is less than the two-year maximum that the IRS mandates.
Acceleration may not exist on older policies of insurance. And, even on those policies where the benefit does exist, the companies’ customer support department may not be trained to handle your call. You may have to try several times. Unlike viatical settlements, insurance companies tend to view acceleration as a good thing, so most are willing to offer the benefit. Their customer support department’s lack of awareness of the benefit may be more a function of the infrequency with which the program is used, not the insurance company’s willingness to offer the benefit.
The ultimate decision to accelerate is highly individualized. If a person’s life expectancy is truly a few months, acceleration may be of no benefit to them. On the other hand, if a person does require funds, and they believe they may outlive their anticipated life expectancy, acceleration may be the perfect solution.